Earnings Call: Q1 2020

May 6, 2020

Good afternoon, and welcome to our first quarter twenty twenty earnings call. This is Jody Allen, Head of Investor Relations, and I'm joined virtually by our CEO, Elam Qadri and our CFO, Kareem Hajar. Today's call is being recorded and will be made available for replay on the Investor Relations section of our website. I would like to remind all participants that the presentation includes forward looking statements, which are subject to risks and uncertainties. You may refer to the slides related to today's broadcast, which are available on our website. With that, I'll turn the call over to Elam. Thank you, Jody, and hello, everyone. I hope that you and your families are all in a good health and managing well through these challenging times. It has now been three months since COVID nineteen started taking its toll in in China. In the meantime, the virus outbreak has swelled into a pandemic and is now provoking an unprecedented global economic crisis. Today, we have eight colleagues who are infected with COVID nineteen and one hundred eighty four employees in quarantine, down from our peak of three hundred sixty nine. This low level result from our good practices and lessons learned from our colleagues in China and Korea, especially the early adoption of preventive measures, including mandatory teleworking for over six weeks now or about 10,000 employees. I wish our affected colleagues a speedy and complete recovery, and I take the opportunity to acknowledge and appreciate all of our employees for their dedication, those keeping our operations running smoothly and safely, and also those working remotely at home. I'm inspired by the way I'm seeing Solvay teams connect and collaborate virtually to meet the changing demands of our customers. While I have always taken pride in the hard work and dedication that exists at every level of the Solvay organization, the last few months have been nothing short of a tremendous team effort. This crisis is bringing our purpose to life faster than I I could have ever imagined, to bond with our customers, to bond together as teams, and to be at our best for one another. To that end, we at Solvay are doing our part where possible to support the fight against COVID nineteen. There are countless examples of how we are bonding with and supporting our communities in these difficult times, and several are shown here on slide five. Our peroxides business has donated 700,000 liters of disinfectants to hospitals and more than 1,000,000 bottles of sanitizing gel. We also partnered with Boeing, a key customer of Solvay, by supplying our Radel medical grade polymers for use in the production of face shields for health care workers. We have also taken a number of actions to help navigate through this complex global health and economic crisis and best position Solvay to return to growth when the market starts to normalize. First, we recognize that Solvay plays an important role in supplying our customers with products and services they rely on. Our technologies and chemistries were considered essential, which means we were able to maintain our global operations at full capacity throughout the first quarter, and there were no shutdowns issued by authorities. The only exception, as you know, was the temporary mandatory shutdown in China when the virus began. We established a global crisis response team at the executive level that quickly mobilized and developed a strategy to monitor, evaluate, and successfully navigate through the crisis situation. We have been holding daily meetings to manage the safety of our employees, prioritize our resources, and take decisive actions in a timely and disciplined manner. Turning now to the business and macroeconomic environment, the IMF now forecasts global economic output to fall by 3% in 2020. We are entering the worst crisis since the great depression of nineteen thirty. The automotive industry has been among the hardest hit by the collapse in demand with global production declining 26% in the first quarter, following a decline of 6% in 2019. Many European and US OEMs in the auto industry stopped production in the first quarter, and the aerospace industry is now starting to follow suit. Yata's latest assessment projects air passenger volumes in 2020 to contract 48%. And in the past weeks, Airbus has already announced cutting their production by 30%, and Boeing has made similar production cuts. As you know, these two markets represent about 25% of Solvay's sales, so this represents our biggest headwind. Our other key markets, health care, consumer goods, agro and food, which collectively represent about 30% of sales, are relatively resistant and we are seeing more stable demand. Solvay's diversified portfolio and balanced end market exposures were strength in 2019 and will continue to weather the 2020 storm, and we will build on these strengths throughout any market cycle. As you know, at Solvay, we are a long term company focused on the short term. The impact facing many of our customers is unprecedented, and therefore, we must adapt many of our short term priorities accordingly, but still keep an eye on our long term objective. In this vein, what hasn't changed and where we have doubled down our efforts is on our costs, cash, and, of course, on our customers. Nevertheless, the impact facing many of our customers is unprecedented, and we have had to adapt many of our near term priorities accordingly. I will now touch briefly on each of these objectives, starting with costs. In addition to our ongoing austerity measures, we took steps to advance our cost reduction program, which delivered €50,000,000 in total saving in quarter one, one third labor and two third indirect spend. We did this by accelerating against our existing restructuring plans announced last year. We implemented a group wide salary freeze as from January 1, and we reduced the indirect spend, particularly related to technical goods and services across our global business units as well as general expenses. So turning to cash, as discussed, cash generation has improved significantly over the past year, especially in terms of phasing and inventories. This continued in quarter one, where we delivered record level cash generation at $2.00 €2,000,000. This marks the fourth consecutive quarter of positive cash flow and demonstrated that our clear focus and related incentives are working. Looking ahead, we are even more focused on inventory level and credit risk during this period. And of our customers, in times of uncertainty, it's especially important to stay close to our customers. To that end, since the onset of COVID nineteen, the executive committee, myself included, has taken on the responsibility of overseeing progress with our key strategic customers. I'm delighted that we continue increasing the share of wallet. Here are some examples. We're extremely proud of being involved in developing a product using COVID nineteen testing. We cannot develop many details on this new confidential health care application, but we can say that our teams acted quickly to collaborate with our customers, develop, pilot and produce an ingredient used for testing. We are also supplying technologies for a potential vaccine for COVID-nineteen. A second example and aside from health care, we have expanded our business with Murata, who is a leading Japanese manufacturer of electronic components. Almost every piece of electronic equipment in the world has a Morata component in it, and each will have now a Solvay inside. Finally, we signed a long term exclusive agreement with Honda Aircraft for supplying composite materials for their business jets. So as you understand, our immediate strategic focus on our cost, cash and customers has supported Solvay's strong financial performance in quarter one. We delivered greater than expected EBITDA of €569,000,000 essentially flat with last year's quarter one. Our pricing power combined with our disciplined cost management program enabled us to improve our industry leading margins by 0.8 percentage points to a level of 23%. And our free cash flow delivery of $2.00 €2,000,000 was nearly €300,000,000 more than the first quarter last year. While we continue to monitor the pandemic and the impact it has across our relevant markets, we are pleased to see that our resilient businesses and focus on execution has positioned Solvay to deliver strong first quarter performance. Before turning the call over to Karim to review our financials in more detail, I want to note that the market environment we are facing is unprecedented and will remain dynamic and uncertain. We will continue to be nimble and adapt quickly as the situation evolves, but but we will also remain disciplined. While some of our near term priorities may change, our commitment to our growth strategy remains intact. We are continuing to see progress as we work to implement a strong enterprise wide operational model, instill a performance based culture across the entire organization, and, of course, live up to our purpose and values every day. With that, I will turn it over to Karim. Karim? Thank you, Ilan. Good afternoon, everybody. As you've seen, our reported EBITDA was stable, and our underlying post tax profit was up over four and a half percent on the back of reduced financial charges. And these profits are despite a 6% fall in reported sales. If I turn to the business segment, I will refer to figures on an organic basis, by which I mean constant scope and currency. I'll start with materials on slide number eight. Net sales of €789,000,000 were down 2.9% organically, driven primarily by reduced volumes in the aerospace market. I'll first discuss our two discuss our two largest markets, auto and aero, which together represent 25% of group sales. Composite materials, as anticipated, was impacted by the production stoppage of the seven three seven max program. Sales to other commercial aero programs were stable in the quarter, whereas sales to the military sector grew by double digits in the quarter. Mitigation plans, which were already underway late last year, were deepened and accelerated early in the quarter and helped to offset the seven three seven volume decline to maintain EBITDA levels. Specialty polymer sales were essentially flat versus q one twenty nineteen. Our high performance polymers used in auto were up two percent versus q one twenty nineteen, and they outperformed the market in the context of LMC light vehicle world production estimates being down 26% in q one this year. Part of the overperformance, the outperformance relates to further penetration of our technologies into specific areas such as electric motor components and turbochargers. And we believe also that some of the outperformance could have resulted in higher inventory levels in the industry. Other markets proved resilient, including consumer goods and health care, electronics, and together these represent about 17% of group sales, and together they were resilient. Taking a step back, overall, EBITDA for materials were down 5% organically to €228,000,000 as the substantial cost measures and price supports helped to mitigate much of the aero volume decline. It's also important to note that cost in specialty polymers were 25,000,000 higher in q one this year related to the accounting effect of reduced inventory levels this year compared to last year. Despite this accounting effect, we were able to deliver solid EBITDA and margins of 29%, only half a percentage point below that of last year, and up sequentially against q four last year. So overall, in these circumstances, a strong quarter for materials. Moving to moving to slide nine and to the chemical segment, sales declined 3.2% organically to €800,000,000. In soda ash, sales were down 4.2% due to lower demand in building and construction, which represents 8% of group sales. Other markets, including container glass, detergent, and health care, partially mitigated the decline, and prices remained stable overall. Peroxides performed well with sales of 172,000,000 in line with last year's level. The business saw good demand in traditional pulp markets, including tissue products and disinfectants. Pricing power combined with cost discipline enabled us to maintain a strong bottom line performance in the quarter. The remaining businesses in the chemical segment, namely our silica and coitus businesses, were stable with organic sales levels similar to the first quarter last year. Overall, the chemical segment continued to demonstrate its intrinsic resilience with EBITDA increasing 5.4% organically to €239,000,000. Thanks to the combination of solid demand, improved pricing, and operational excellence. And together, this translated into two and a half percentage points increase in margins, which are now at 29.8%. Turning to the solutions segment on slide 10, net sales declined six and a half percent organically to €883,000,000. I will begin with oil and gas, which is one of the most challenged markets, but now represents less than 5% of group sales. We've all witnessed the unique developments over the past few weeks, and that was on the back, I remind you, of an already very difficult period in the industry since the middle of twenty nineteen. The dramatic fall in demand has led to an oversupply of oil and gas, and our customers are significantly impacted. Now we had already initiated a strong turnaround in the third quarter of last year, including restructuring the business, cutting costs, and fundamentally aligning our value proposition to the changed market environment. Our team has already reduced the cost base substantially, and they're focused on bringing solutions that address the new needs of our customers. Our exposures our exposure to other end markets in North Care, such as home and personal care, agro, and coatings, altogether represents about 30% of the group and about half of North Care sales. And demand in these markets was resilient, and this led to slightly higher sales year over year despite some impact from the shutdowns in China. This strength helped to partially offset the oil and gas headwinds. Turning to technology solutions, sales were down just over 2%. Mining, the largest market in this business, sustained good demand as most of our key customers were still operational, and this helped to offset weaker conditions in other industrial and auto markets. Special chem sales were slightly down, but strong demand for semiconductors helped to offset weaker demand in thermal insulation. Aroma sales were up 9%, thanks to higher volumes and pricing for natural vanilla ingredients, which are used in food and in fragrances. Taking a step back, overall, the solutions segment EBITDA was down 4.3 in the quarter with stable demand across a variety of markets combined with strong very strong cost control measures, and this helped to partially offset the headwinds of oil and gas. In fact, EBITDA margins were improved more point two percentage points and now stand at 17.4. Moving to cash management on slide 11. As Ilham mentioned, the strong q one free cash flow performance is almost 300,000,000 above q one last year and was fundamentally driven by group wide focus on cash. But I'm gonna focus and highlight three particular factors. One is we continue to see the benefits of a sharpened focus on working capital intensity and on phasing, and we began to and that we began to see that indeed in the second quarter of last year. By way of example, our inventory levels in q one this year were €162,000,000 lower compared to q one last year. Two, we had a tax gain of €65,000,000, cash, associated with additional voluntary pension contributions following the receipt of proceeds from the polyamide divestiture. Three, as you know, we decided to curtail our capital expenditure plans during the quarter and already benefited from lower cash spend of €15,000,000 in this regard. Now I turn to slide 12. In April, we increased our committed undrawn credit facilities by €750,000,000 to take the cumulative total to 3,250,000,000, committed undrawn credit. On top of that, we have cash and cash equivalents of €9,900,000,000 at the March. We have no financial covenants and very low refinancing risk, indeed, because our next maturity is a hybrid bond of €500,000,000 with a coupon of 5.12% and a first call date of June 2021. So whilst we acknowledge and we see that credit rating agencies have been taking rating actions on a large number of chemical companies, We do note Moody's recently affirmed our credit rating at b double a two, albeit with a negative outlook. Turning to the topic of pensions, I will highlight that we made additional voluntary contributions to several plans. In q one, we made a total of 460,000,000 contributions in France and in The US, and I'll remind you that this is on top of the 114,000,000 contribution in The UK in December 2019. These total contributions amount to €574,000,000, and they will reduce our annual pension cash spend by over 60,000,000 a year beginning this year. So in short in short, you've seen that over time, our portfolio has proved to be strong and resilient. We are delivering consistently strong cash generation, and indeed, we are now tackling the most structural pension issues that have previously weighed on our cash generation. And as I've explained, we have a strong balance sheet with ample liquidity reserves and low refinancing risk. So it shouldn't be a surprise that Sorbet's board supported management's recommendation to continue the final dividend proposal of €2.25 per share at the annual general meeting on the May 12 next week. And with that, I'll hand you back to Ilham to discuss the environment in the second quarter and to provide her closing remarks. Ilham? Thank you, Karim. So despite our strong start to the year, there remains significant uncertainty around the extent of the impact that COVID nineteen will have on our business. We are staying close to our customers to understand and quickly meet new demand patterns across our markets, as well as manage our inventories and align our operating rates to new levels. To that end, and as previously announced, we have withdrawn our full year 2020 guidance originally provided on February 26. We will provide you with a better view of the full year once market visibility improves. While we do not believe that we can reliably forecast financial targets at this time, we want to provide you with directional color on early trends we are starting to see as we enter the second quarter. We saw a market decline in sales in April, and our order books for May and June indicate further deterioration, and this is what we confirm that we expect q two to be substantially lower. Indeed, we are seeing pronounced declines in aero, oil and gas, and auto, and softens softness in pulp and paper and in construction as flat glass producers are shattering capacity. As these trends continue to unfold, we will continue to make quick informed business decisions with our three immediate priorities in mind. Based on the trends, have decided in early April to immediately implement additional actions to address the changing environment. First, we are adapting capacity to align with reduced demand in particular in challenged markets such as oil and gas, auto, and aero. In doing so, we will maintain higher utilization rates and reduce unit production costs. As of the April, approximately 10% of our global sites were idle, and we also have a significant number of sites running well below normal operating rates. We will continue to monitor the situation and further align our production to demand. Second, we are reducing staff temporarily. Effective May 4, we implemented four loans that impacts around 5,000 employees in industrial and administrative functions globally. Third, we applied strict CapEx management. And as previously announced, we reduced our full year CapEx plan by 250,000,000. But let me be clear, we are prepared to resume these plans when our customers need us. As you know, Solvay has lived through many market disruption in its one hundred fifty six year history. And while we don't have visibility into how markets will evolve, we remain confident in our ability to manage our business through these near term headwinds and position the company for success across a range of post crisis scenarios. Our strong diversified portfolio coupled with our financial flexibility and the additional structural actions underway will enable us to immerse a stronger, more resilient company that is well positioned to unleash our full potential. Before I close, I want to remind you that we put in place a solidarity fund to support our employees and their dependents who may experience hardship due to the impact of COVID nineteen. The fund will will be a charitable entity administered by the King Baudois Foundation. We launched this initiative few weeks ago because we care. It truly exemplifies one of the key pillars of Solvay One Planet and ESG goals, which is to improve the quality of life of our employees and society at large. In addition to senior leaders and the chairman of the board, I'm very encouraged by our nonexecutive directors and the many Solvay employees and private shareholders who have indicated an intention to contribute. More importantly, I take the opportunity to note and appreciate our reference shareholders, Solvax, for their commitment to contribute a minimum of €10,000,000 up to €24,000,000 to the Solidarity Fund. I also learned that around 200 investors have also decided to contribute funds and the current and and currently is around €2,000,000. And I'm hopeful that this figure will increase in the next few weeks. We encourage all shareholders to contribute towards this important cause. Indeed, we consider this to be a concrete example of a truly responsible capitalism. With that, thank you very much. Karim and I will now address your questions. Thank you, Elam and Karim. Before we start the q and a, can I kindly remind you to limit yourself to one question only to allow time for all participants? And now I'll hand it over to our moderator. Thank you, ladies and gentlemen. We have the first question from Markus Mayer from Bader LBA. Sir, please go ahead. Good afternoon, Liam, Karen. I have two questions one question first, and then I will ask one later on. With the full year reporting, you have guided for an expected COVID-nineteen effect of around twenty five million. Was the actual impact larger or smaller than The U. Expected? Can you quantify this effect? Markus, good to have you with us. So the question is about our COVID nineteen impacting quarter one. Right, Marcus? Exactly. Exactly. Yeah. So you may remember, Marcus, and, you know, my promise to most of you is to be open and transparent as we possibly can when we have the most accurate, current, and relevant info in hand. We guided last you know, actually, in February, we guided you that the impact of COVID nineteen in quarter one will be €25,000,000, and we ended up at €20,000,000. So not bad, right, for for, you know, taking into account the situation. The impact was mainly in reduced volumes in two segments, mainly in solutions and in chemicals. And main markets were, you know, mostly around the the the oil and gas, some silica, some coatings, some, you know, NovaCare. You you may remember that we had a mandatory shutdown in China for two weeks. Right? And and that's, you know, the the the impact we've sized. Having said that, COVID nineteen in China and Korea had another phase than what we experienced today in Europe and in The US. I must say, you know, the authorities have been really squeaky clean and very transparent about the time of the shutdown, the right to return to work. As you know, we had no operation so we had no operation in the we in the Wuhan. And that's also made us extremely agile to come back to work very quickly. So, yeah, we made money for 25,000,000 estimates. Thank you. Very helpful. Thank you. Thank you. Next question comes from Louren Alexander from Jefferies. Sir, please go ahead. Hi. This is Dan with Alarm. Thank you for taking my question. How does this sound different time frame effect of thinking about the long longer term targets? Do you think about the progress as more professional at this point? Sorry, Lawrence. We couldn't hear you very well. Can you repeat this? And you Hold on a second. Yeah. Maybe that's better. This is this is response to Lawrence. We're just wondering how the current downturn is affecting the taking these long term targets. Should we think about this more professional at this point? You are talking about the midterm target? Yeah. I'm I'm having a bad connection here. Sorry about that. Just I'm just talking about the long term targets. Are they still achievable? Is it or is it more directional at this point? Okay. Alright. So so I bet you're talking about twenty twenty four targets. Right? And are they at risk. Right, Lawrence? Yeah. Yeah. Sorry. The connection is not good from both ways. This is a good question, Laurence. But as you have noticed, could this full year 2020 and clear? And I was done basically. Right? Not Lauren. So hi, Dan. As I said, Dan and Lauren, we are a long term company that is right now focused on short term priority. There is no long term without the short term. Today, we are not withdrawing our mid midterm guidance. When we have more visibility, we will come back to you in due time. It's clear that if the economic crisis resulting from the pandemic lasts longer and deeper than what we can all see right now, this would put these targets at risk. But whatever recovery shape you wish to assume, I'm not gonna, you know, serve you a super alpha beta between the v, the u, the the prolonged u, the l, or the w. Right? I mean, the v is probably going bad for in many regions. What I can tell you is that you can count on us, conservative people and employees, and only personally and the executive complete to make progress executing and delivering our plan, which is still grow with the key fundamentals. And I believe that this crisis is actually strengthening the fundamentals of it and do whatever we can to serve our customers. Thank you for the question. I reached the 300. Thank you. Your next question comes from Mubasher Chaudhry from Citi. Sir, please go ahead. Hi. Thank you for taking the question. I had one on on working capital. As I can see, a large portion of the inflow was from other kind of liabilities. Could you just provide some color as to what those relate to, please? What what would be just a quick tack on to that. You mentioned that 5,000 employees are in furlough. Are you are you relying on any government schemes for those employees while they are in furlough? Thank you. The first question, Mubasher, was around working capital. Again, I think the line is very bad here. My apologies. Sorry. So the working capital inflow for for the first quarter, a large portion of it was coming in from the other current liabilities. Yeah. If you could just provide some color as to what that relates to, please. Okay. K. Thank you. Just look at my detail notes, and I'll come back to you in that in one moment, Mubasher, on the specifics on the working capital because the main drivers are exactly the one that I've described, but I'll come back to you on that other working capital. Well, I mean, on the I mean, quickly on the working capital because I I I didn't get it, and we are remote. You know, Mubasher, that since last year, we've been focused focused on inventories and working capital management. You may remember that. And when I joined the company, and it's actually my first year anniversary in my fourth quarter, I was not happy with the cash flow phasing, and part of it, it was due to, you know, less structured and phased inventory and working capital management. We are making progress. It's it's part of our growth strategy. In quarter one twenty twenty, inventories are down €162,000,000 or 9% year on year. We are now, because of the crisis situation and lack of visibility, we are working closely with our customers to adapt to their changing needs, and that will help us in managing inventory level. And that's the the challenge, you know, as we speak for better managing quarter two forward. Of course, accounts receivables and accounts payables are really important. In terms of risk, it's important to manage very well your receivables. With Karim and the finance team and the business unit president, we implemented the risk management for all our customers. We have five categories. One is, you know, low risk, five is high risk. Anything above three needs the signature from our and sign up from our CFO. So we are really looking at credit. And we personally experienced it all hit online, and my nightmare and and the pain was really on credit management. So the team hears me a lot now saying that the sale is a charity. So we'll collect the money. On the payables, I think we are doing a better job since a year, you know, looking at how we can extend payment term, how we can have strategic, you know, suppliers with us. And I commend what the team has been doing, the procurement team across the globe on doing so. So work in progress. We have now strategic programs. This was part of our €350,000,000 of cost savings program. You may remember it, which we launched in in November, and we updated an increase in February. So definitely working capital end to end value chain management in collaboration with our customers is in progress. We started with specialty polymers. We will move to North Care because those are, you know, where we see low hanging fruit, and we see the big impact for Solvia as a corporation. On the four loads, I mean, obviously, it's always painful to to make four loads like any other, you know, action or, you know, touching people. But at the end of the day here, what we are experiencing is less demand, less external activity, therefore, internal activity, and that's what we are adapting. It's operations. So operating run rate, as I mentioned it, either in capacity where whenever we can we can do that while being very agile and elastic to rebound whenever customers need us. So this is the trick. Second, indeed, we're putting, you know, people on furlough, but we have launched HR, you know, guidelines and protection for our people regardless of the country of residence. And this is what you can expect from Solvay. Some of the countries have an excellent social and health benefit for people who are going to follow, who are, you know, subject to diseases or illness during these tough times. At Solvay, we have one unique guideline, and we protect all our people equally, including in countries where they are not covered very well. So with those HR principles, we have announced the follow, and we're gonna adapt as the demand, you know, comes back, as our customers need us back. And, obviously, this is fluid and dynamic. So, yeah, you will see us giving you an update in the coming weeks. Maybe just to come back to your very first point, Ravashad, The working capital exactly as we've said, it's inventory, receivables, very strong consistent progress. To a specific point on other working capital, it's a mixed bag of many, many other things like customs, duties, VAT. And we've also been optimizing and centralizing a lot of those activities globally, and that's a contribution towards it. It's not the full figure, but it's a good it's about half of it approximately. So essentially, the optimization covers everything to do with cash, not just inventories, etcetera. But thank you. Thank you. Our next question comes from Mutlu Gundogan from ABN AMRO. Sir, please go ahead. Yes, good afternoon. One question it is. On Q1, your MVA ended up flat year on year, which is significantly better than your guidance at the February. Can you tell us why March was so much stronger than expected? And if you allow me, not so much a question, but more a remark, I really like the old EBITDA bridge. I mean the new one is also good, think, but we miss the volume effect, no operating leverage. We can't see the benefit from raw material deflation. And especially, cost savings is an important part right now. We can't track that besides the qualitative remarks. So would you be able provide that on an ongoing basis? Thank you. Yeah. Thank you, Mutlu. I'm smiling because the simplified press release was actually, you know, a result of of, you know, the comments and and my onboarding tour with you guys and many who have complained that we are too complicated to understand. So we try to simplify. So be with us. Right? We will obviously, we want to be, again, as open and transparent and give you the real dynamics and the underlying performance KPIs of our business. But a point well taken. Listen, on the q one performance, I think there are few things, and I'll add to what Karim and I will share. I think, you know, what this company has seen, and we've been very busy last year, four four four quarters times go fast for me. I'm a first year in the company, and we've been very busy in 2019 or in the past four quarters. I think we have renewed the foundation for the company to start really building up on delivering against the growth strategy. Obviously, we didn't expect COVID nineteen to happen, but this, you know, renewed foundation, I'm truly a believer that it's gonna help us to weather the storm in 2020, although sometimes you cannot define gravity. And I remind you a few things. We changed management to focus on cash. So cash is king. Obviously, you hear a lot about it in 2020 and with the crisis. But, you know, we say this in quarter two that free cash flow is important, and we managed it since then. We changed the incentives of our president. We changed the capital and resources allocation. And frankly, we we are very blessed that we did it last year, not in January or in February or in March when COVID nineteen start expanding from the East to West. We stopped city lights. You know? I I don't regret it a second, the architecture project. We sold polyamide on time, and we are repairing our balance sheet and paying, you know, down the debt or, you know, sending pensions, which is helping us to decrease our expenses on a yearly basis. So, you know, all of this, I think there is not one, two, three. There are many ingredients, and I commend the heavy work, the hard work, the intensity of it in the past year, which the team did behind the scene, and that's what you see, the strong performance on EBITDA, which is indeed at the same level of 2019. I'm very proud of the free cash flow generation. And the financial robustness, I think I'm a believer that liquidity, debt, deleveraging goes along with the rest. And I think what we've done with Karim and the executive committee is quickly preparing for the the crisis and ensure that we have enough liquidity, 4,000,000,000. We have no covenants. The debt, obviously, next maturity is June 2021, as we told you, and deleveraging, you know, we did that, and we will continue looking at that. So all in all, this is it. It's about, you know, now during crisis situation, we embrace the reality. There is no point to deny or or or to think twice about that. It is happening. We can do nothing about that. And with my team, we are redefining what does it mean winning. Even if the strategy is is consistent, I think winning will take a different shape during crisis times than during non crisis time. This is what I learned in my o eight or nine o o eight or nine financial crisis and during the nine eleven crisis. And then the trick, and and I have been saying it, is to execute against the plan flawlessly. Now, you know, be with me. It's easy to say. It's harder to do because we manage volatility and uncertainty, but we are developing the muscle. And I'm very happy that I have one year and four quarters with this fabulous team with us to really go through 2020 and its challenges. Thank you for the question. Thank you. Our next question comes from Setan Udeshi from JPMorgan. Sir, please go ahead. Yeah. Hi. Thanks for taking my question. I just had maybe couple. I know it says little bit of one, but maybe I'll try to squeeze in two. The first question is how are you adjusting structurally to the potential that the aerospace demand may remain depressed for a long time? What can you do? What can you not in terms of adjusting your capacity cost base, not just for temporary purposes, but for for, say, for a longer period of demand weakness? That's the first question. Second question was, you know, this 50,000,000 of cost savings that you talked about, firstly, how much of that was know, how much of that benefit was already in q one? And does that include the benefit from, you know, 20% of employees being on furlough? Because I think I wasn't very clear whether you are using some of the government schemes as part of the furlough or not. Thank you. Okay. So, Chetan, I I will take the first question, and Karim will take the second one. Your first one was about aerospace. Right? I mean, you've seen I mean, I'm sure you have all our numbers. Yatta's latest assessment, as I mentioned in my prepared remarks around air passenger volume, they expected it to contract 48% in the past weeks. Let's see. As I said, Airbus has already announced cutting their productivity by 30%. Boeing is doing the same. So we are reducing our production to reflect this level that customers like or, you know, OEMs like Airbus and Boeing have shared with us. Right? I remind you two things about Composite before before I tell you how we're gonna address the challenges ahead of us. I'm very proud of Composite and what they've done last year. You may remember when I joined the company, and most of you told me the same. You were not that much happy about the leverage between the top line and the bottom line since the acquisition of SciTech. Last year, and this is the word of our GBU president, not mine, was the best year in the history of SciTech. So they've done a great job into improving the operational efficiency, right, last year, and they prepared themselves for actually weathering the storm of quarter one. Seven three seven MAX grounding is not new to us. It started end of last year I mean, most of last year, but end of last year was was getting a bigger impact, quarter one as well. And despite that, we had, you know, we we had the record EBITDA levels last year. And this year, we delivered EBITDA in quarter one at the same level as that record quarter. Right? So now it's different. We are enter entering unprecedented time, and we are again accelerating our mitigation efforts. We are taking a strategic look at our manufacturing footprint to look for more ways to improve efficiencies and reduce costs during this time of lower demand. So indeed, we are focused on trying to manage what is our control. And finally, let me remind you about an important point that the reduction relates to commercial aircraft. We are not adjusting production in the military sector as this continues to remain stable and possibly grow at double digit levels. So military, I remind you, represent 25% of composite sales. Having said that, Karim, can you address the second question? Well, the 50,000,000 of costs. So I make it easy. So it doesn't yet include the furlough benefits, which are really starting now in in major part. But I'll give you some more color on it. A third of it is to do with people related costs and two thirds other. Now by people, what's in it? It's continuing with the focus and acceleration of the restructuring programs we announced previously. That's the first piece. The the hiring freeze, austerity measures we should expect, the salary freeze that we've implemented globally, These are the kind of measures we've taken place. On the two thirds, which are more of an external spend, there's an element of austerity, necessary you can't travel and etcetera at the moment, but it's much more than that. There's a structural program on indirect spend, which is part of our growth strategy. So it's really around batting down the hatches, but that's what this is about. The furlough points, which are essentially ahead of us for q two, is really intended as a temporary measure to mitigate and adapt to declining activity levels, and that's yet to come. But clearly, that you'll see that with the partial mitigation of a sales decline typically. Does that help? Thank you. Next question comes from Matthew Yates from Bank of America. Sir, please go ahead. Hi, everyone. Thanks for taking the questions, and congratulations on what looks like an outstanding quarter in this environment. I appreciate you're trying to temper our expectations somewhat for Q2. Hello, Matt, you've said several times that cash has clearly been a priority for you over the last year since joining. So let me ask you a couple of questions related to that. The first is a strategic one. I think Karim highlighted earlier in the call that you've now been put on negative outlook by the agencies. So can you talk about the decision to still go ahead and pay that final dividend, versus what's a fairly significant CapEx cut that you're making and why that won't impact the long term prospects of the business? The second question is apologies, just my own confusion around what is going on with the tax payments in the quarter. It looks like from a cash perspective, you've got a refund. I'm just wondering if that's complicated by the Polyamide disposal and capital gains or or what we think an underlying cash tax rate for the year is. Thank you. Okay. Well, let me talk so the second point, and I'll come back with the dividend. I'm sure Elam will add to it. Yeah. On the tax, essentially, by making a contribution in a structured fiscally effective way by using the proceeds of the polyamide sale, we basically get a tax deduction. You can look at it as a one off. It's cash. It's good quality, but it's more of a one off nature, which is why I've highlighted it. So that's all really I can offer on that. The rest is pretty confidential, essentially, to how we do things here, but it's very, very secure. On the first point, now beyond what I've described already, talk about Moody putting us on a negative outlook, etcetera, fundamentally, we've got a very strong balance sheet. We've got strong cash generation and confidence both in the portfolio resilience. Now you may also make the point on the CapEx. Maybe one thing to highlight, and it may not be apparent because I haven't made it apparent yet, once we've decided to adapt our CapEx plans, we are really making sure we have our eye on the growth. So 40% of the reduced CapEx programs for this year are still eyeing future growth projects and r and I. So we're not sacrificing future growth to conserve cash. We're really keeping a healthy tension between adapting to today's priority and preparing for tomorrow's growth. And maybe just one final point on Moody's at the rating action. What is helpful is also in the fine print, they have given us significant time compared to a few others to come to a stronger performance from a gross debt to EBITDA metric in particular. That is what they're focused on more than the cash generation or our liquidity. Ilan, on the dividend? Yeah. Thank you, Matthew. Well, listen. You know, we paid the dividend this year for 2019 results. Right? And I I remind you that we had a record free cash flow generating in 2019. Basically, if I remember, well, plus €300,000,000 year on year, right? Quarter one, you know, has seen, you know, a similar trend as our as you said very well, our focus on free cash flow has has has happened since day one I joined the company. So, you know, at the end of the day, when you close a year, you look actually at paying bonuses to your employees, and we wanted to reward our people on the hard work they've done in 2019 and also to to to acknowledge, reward our shareholders who have, you know, put their trust in us and counting on the dividends. Right? And that's and that's basically the reason why we decided to recommend a stable dividend, furthermore, taking into account our ability to remain cash generative in quarter one. Now you know also the level of our liquidity. So 4,000,000,000, as Karim said, no covenant, being in a very, very solid financial robustness, and that's important that indeed we preserve the strength of the company both in liquidity and also we closed the pack. So we had proceeds to to to repair the the the balance sheet as I mentioned. I think, you know, that's the reason. The the the future now 2020 is another year, right, with its own share of challenges. Right? And we will make the the decisions concerning 2020 in due time. So that's how we saw it. Right, Matthew? It's very clinical, very consistent, with the way we've done it and with the situation of our financial robustness, cash flow generation, balance sheet, and liquidity. Matthew, one other final comment. I I just remember, I didn't fully answer your question on the effective underlying tax rate. Just to remind you, this comprises both deferred tax and current tax. It's nothing to do with the cash. Now at this point, we're still at 26.4%. The strategic guidance remains unchanged. But let's be clear that as the profit pools in The US, etcetera, change temporarily, I expect all sorts of potential short term changes. But at this point, I'd say no no strategic changes to our guidance on things like taxes. And one more, Matthew, because you had so many questions. I almost forgot it that it should not be an an an an answer. It's on your CapEx. Right? So, obviously, the question was why you are reducing your CapEx by 250,000,000, and are you jeopardized in the future? Well, listen. We remain very agile in this environment. Right? I mean, we're not here to, hijack or or penalize our future. As I said, we are a long term company, managing and tackling the short term. We have an eye on the microscope and eye on the telescope. Let me tell you that 40% of the remaining CapEx is 40% investment is still going to our research and innovation and development projects. Right? So we didn't kill or or or or get to the bone of of the growth investment. We're not gonna do that. Now in the reality, we need to be, again, very agile, adaptable, embrace the new realities. We are assessing regularly all investments and making sure the strategic ones continue and that we are not making any delays whenever it makes sense. But if customers do not need new capacity, if by now we have enough capacities in our own assets, and I remind you that we are also pushing digitalization inside, you know, our manufacturing and industrial footprint at Solvay, we are actually debottlenecking, and we believe we have enough capacity today to serve our customers today and tomorrow. And, frankly, we are looking very carefully at the post crisis, you know, shape of recovery, and we are looking how to rebound and be at the start up to do to to be, you know, the quickest one to obviously win and conquer. But thank you for the question. Thank you. Next question comes from Jeff from Kepler Capital Markets. Sir, please go ahead. Hello. This is Jeff Haire from UBS. Just had a quick question on the composite business. Just given the recent updates we've seen from Boeing and Airbus, would it be reasonable to assume that you're going to see negative organic growth on an annual basis both this year and next year in Composite Materials? And could you just break down the different end markets within Composites, please? So as I told you, you know, on composite materials, you know, obviously, as you said, the large, big tools are reducing their production, of fleet. And, obviously, you know, Airbus announced 30%. You know that Boeing reduced production on white bodies by similar rate for for the big planes. Commercial aircraft for us is around 65%. Military is 25%, and the balance is industrial. That's more or less at high level, you can take those numbers. Right? The the the I mean, again, we shall see. We shall see how things are gonna evolve. L l nines are expected to use this crisis to retire also older aircraft. This will create, probably, demand for newer aircraft model. We are hearing it. New airplanes will be, you know, probably 25%, 40% more efficient. They have more composites in it, and we are well underway with mitigation efforts. And this is how we we we were able to deliver, frankly, a good quarter one. And even, you know, second half twenty nineteen, you know, was very robust because we started really looking at our operational efficiencies. We started looking at our manufacturing footprint. So this is extremely important. Operational efficiencies, manufacturing footprint, automation, you know, is extremely important to improve the cost structure. So we will continue doing that in the coming weeks and days. So that that's the name of the game. But in a way, we are blessed to have military doing well, and we are blessed that we started already this hard work last year. So you will see more from us in the coming weeks and months, Jeff. Thank you. Next question comes from Sebastian Bray from Berenberg. Sir, please go ahead. Good afternoon, and thank you for taking my question. It's on composites and profitability. What is the balance of fixed and variable costs in this business? If I look at Hexcel, the market consensus appears to be suggesting that a $1 decline in sales is going to cause a slightly less than $2 decline in EBITDA. Is that a reasonable rule of thumb for the SciTech business? And a quick follow-up, are there any and how much more book value is there left in oil and gas that could potentially be impaired? Thank you. Okay. So I'll take the composites, and maybe Karim can take the oil and gas. Well, listen. Is is that Sebastian? Yeah. Yeah. It was Sebastian. Yeah. Sebastian, as a reminder, our asset base in composites is a bit more flexible, and I don't want to compare with anybody else. I leave you that. Meaning, we are not a 100% vertically integrated, you know it, into carbon fiber as we procure a large portion of our needs. This means we have less of an issue with fixed cost in a way. In addition, and and to complete probably the former question, our portfolio is also well aligned with the new single aisle aircraft, right, such as the a two twenty, a three twenty, seven thirty seven, and so on, we do not have as large position on the wide bodies such as the a three fifty or three eighty. So, you know, you may also think about it when you do some comparisons. Right? We we we we we tend to believe that these aircraft may be slower to recover. International travel may take longer to return to normal following the crisis, but then we have, you know, to to to to watch and see. We have a leading position in the defense sector, as I mentioned. This sector grew by double digits in quarter one and is expected to remain resilient. Military represents, again, 25% of the composite sales. That's it. I think, you know, this is it doesn't mean that we can defy gravity, and don't put me wrong. We will be hit. We are hit. And, you know, but since last year, we've been preparing not for COVID nineteen again, but we were preparing really to look again at our return on capital employed, at our efficiencies. I didn't like, like many of you, the leverage between the bottom line growth and the top line growth, sorry, and the bottom line growth. I didn't see the right multipliers when I came to the job, and the composite team did a fabulous job in starting really addressing the operating rate. We took the best competencies we had within Herita Solve, Legacy Solve, and we we we put them in place with the composite leadership. And, you know, now since four quarters in a row, they are delivering leverage between the top line and the bottom line. So I truly believe that they have, again, developed the muscle, and and we have a mitigation plan, you know, underway, which we will share with you in due time, Sebastian. On the question next question, please. Gas, Sebastian, quite simply, we haven't disclosed that when we took the impairment late last year. It's significantly below, obviously, as a result of the impairment we took in q three last year, but that's probably as far as I can help you at this point. It is significantly less material. So because the total assets of Solvay is not gonna feature materially. Okay. Well, I think we've reached yeah. We've reached close to the end, so maybe we have time for one last question before we close. Yeah. One last. Okay. So for the last question, we have Peter Clark from Societe Generale. Sir, please go ahead. Yes. Thank you. I'm sorry. He's in. It's just a quick one. In terms of the comments you made on SITEK, are you expecting some sort of mix drag coming on either end or EBIT on the basis that we're likely to see a much slower recovery in automotive and aerospace, if it's something you can overcome? Thank you. It's a good question. I mean, the arrow has its own, you know, dynamics. If I hear the most pessimistic people, you know, they may see it coming in, you know, recovering for a long time, at least, as I said, not the international travel any short term. You may see domestic travel kicking off quicker than the international ones. The wide bodies and single l, and this will favor the single l as compared to the wide bodies and the large aircraft, but it's very difficult to answer right very specifically. The auto I mean, you've seen LMC forecast. All of this is gonna depend on the the confinement strategies and how fast people are gonna come back to work, how fast the economy is gonna rebound, what type of stimulus, you know, regions or countries, including China, Europeans, and The US are gonna put into the auto value chain. A question as well is about the electrification, you know, how fast it's gonna go and the emission regulations, which have been, you know, favoring many of us, specifically in China. But, you know, at the end of the day, I'm a believer that we are well positioned. I remind you that the value proposition for both composites and specialty polymer is about light weighing. I I used to say I like metal because we can replace it, and this is for sure gonna continue. Under the hood, batteries in in a in a traditional in internal combustion engine car, they use six kilos polymers. Our polymers are high technology polymers. In hybrid, they use 12 kilo. In electric, they use nine kilo. Batteries need specialty polymers product. They need special chem solutions, composite materials along with specialty polymer, and that's why they belong to the same material cluster. It's not because was funny to put materials together. It's because we are innovating the thermoplastic composites, and we believe we are the best in class to really develop unique, innovative, you know, highly proprietary technologies and solution for these markets and beyond because thermoplastic composites, as you know, is recyclable, has a fabulous sustainability profile and can beat many of the metals and and metallic alloys type of specification. By the way, this type of, programs is not halted during the crisis. We continue doing, you know, testing and innovation programs and running them with our customers. So, yeah, all in all, tough tough market environment. But, again, I asked the team to not focus on on what we cannot control. I think our customers are asking on us. And by the way, most of those, I for I mean, I I should not forget one of the big value proposition in replacing metal, which is important to to to keep in mind in in a crisis time, is that we were we are lowering the total cost of ownership as well. It has a huge impact on the total cost of ownership end to end at the level of ten, twenty, 30% depending on the segment. So I think, you know, everybody now is looking at how they can improve, you know and this is medium term. Right? Obviously, the short term is another story. But medium term, the value proposition we have between specialty polymer and composites is a really strong one, and we believe that we we are best in class to deliver those solutions. Thank you so much. That concludes today's call. But please, I do invite you to reach out to the Investor Relations team if you have any further questions. Thank you so much for your participation today. Thank you very much. Thank you. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.